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Foreign Direct Investment in retailing PowerPoint PPT Presentation

Foreign Direct Investment in retailing By Peer Mohamed. S Shyam Sunder. P Sri Sai Ram Institute Of Management Studies Chennai- 44 “The minds of the Indian consumers is changing along with their lifestyle” Evolution Of Indian Retail Exclusive Brand Outlets Hyper/Super Markets

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Foreign Direct Investment in retailing

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Foreign Direct Investment in retailing

By

Peer Mohamed. S

Shyam Sunder. P

Sri Sai Ram Institute Of Management Studies

Chennai- 44


“The minds of the Indian consumers

is changing along

with their lifestyle”


Evolution Of Indian Retail

Exclusive Brand Outlets

Hyper/Super Markets

Department Stores

Shopping Malls

PDS Outlets

Khadi Stores

Cooperatives

Convenience Stores

Mom and Pop/Kiranas

Modern Format

Shopping Experience/

Efficiency

Weekly Markets

Village Fairs

Melas

Govt.Supported

Low costs

Pervasive Reach

Neighborhood/

Convenience stores

Rural Reach

Source of

entertainment


Categories of Indian Retail

  • Corporate Houses

    • Tata : Tata Trent, westside, Landmark

    • RPG group: Spencers daily,Health and Glow, music world etc

    • ITC : Wills Life Style

  • Dedicated brand outlets

    • Nike, Reebok, Zodiac etc

  • Multi-brand outlets

    • Vasanth & co, Viveks etc

  • Manufacturers/ Exporters

    • Pantaloons, Bata, Weekender


Unorganized Retailers

Typically small Retailers

Evasion of taxes

No monitoring of labour laws

Organized Retailers

Typically Large Retailers

Must pay Tax

High level of labour mechanism

Differentiation

Organized

Retailers

2%

Unorganised

Retailers

98%


Growing Middle Class

  • Indian middle class has grown 57 mn by 2001-02 since 1995-96.

  • It is expected to cross 92 mn by 2005-06 & 153 mn by 2009-10.

  • The younger population translated into higher propensity to spend.

  • This growth in middle class will fuel the growth in retail.


Pitfalls in Indian retail

  • Low domestic competition

  • Lack of exposure to global best practices

  • Low entry barriers for unorganized retailers

  • Moderate entry barriers for organized retailers

  • Wide difference in treatments of small & large retailers


Entry of FDI in retail

  • India allowed to own up to 49% of retail ventures –time frame of 3-5 years

  • India has ranked no.1 in 2005 global retail development, index released by AT Kearney recently

  • Giants such as Wal-Mart and Tesco are keen in expanding their business in India

  • Entry of FDI through joint ventures with local players


Benefits from FDI in retail

  • Improve competition

  • Best practices in retailing

  • More choice for the customers

  • Global market for Indian producers

  • Employment opportunity

  • Better infrastructure and customer Facilities


Standing challenges

  • Government Regulations

  • Lack of trained manpower

  • Availability of quality real estate

  • Logistical support

  • Competition of local players

  • The format does not suit rural India

  • Purchasing patterns not very conducive


Case Study: Chinese Retailing

  • FDI permitted in 1992. 40 foreign retailers have secured approval

    • Retail sales have [email protected]% CAGR since FDI was permitted

  • FDI initially restricted to 6 major cities (including Beijing, Shanghai and Guangzhou) and SEZs

  • Foreign ownership initially restricted to 49%

  • US$ 22 bn of FDI attracted, 3.6% of total FDI

    • In 2003, FDI in wholesale and retail was US$ 1.1 bn (Around 30% of our total FDI in 2003)

  • Current restrictions on FDI will be phased out over 5 years as condition of WTO entry


FDI in retail allowed

China after FDI

375

300

225

150

75

9

2

7

8

8

0

8

5

9

0

9

1

9

3

9

4

9

5

9

6

9

7

9

8

9

9

0

0

0

1

0

2

Years

  • Retail sales grew @ 19.6% CAGR for the next 4 years after the introduction of FDI in 1992


Lessons from china

  • FDI improves the entire size of the industry

  • Retailing in China has grown at a compound rate of 15% per annum after FDI inflow

  • Local players can survive and even beat foreign competition

  • Employment growth

  • Evolution of modern formats


Conclusion


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